Which of the following statements concerning the constant growth dividend valuation model is true?

Question

Quizplus · Accepted Answer

The constant growth dividend valuation model, also known as the Gordon growth model, assumes a constant growth rate for dividends. In order for the model to be valid, the required rate of return must be greater than the growth rate. If the required rate of return were equal to or less than the growth rate, the stock would be overvalued according to the model.

Therefore, statement A is the only correct statement among the options given. Statements B and C are incorrect because there is no specific requirement for the size or direction of the growth rate, as long as it is constant. Statement D is also incorrect because, as stated earlier, the required rate of return must be greater than the growth rate.

Which of the Following Statements Concerning the Constant Growth Dividend